Obama prods Europe to fix economies — for the sake of the U.S.

WASHINGTON — Europe's economic crisis could send shock waves across the Atlantic that would drag down the fragile U.S. economy and threaten President Barack Obama's hopes for a second term. The president demonstrated Friday just how deeply he's worried about that — and how little he can do to prevent it.

Obama used an impromptu news conference to prod European leaders to quickly and vigorously deal with their crisis. Along with that rare cross-Atlantic jawboning, he accused congressional Republicans at home of holding back a U.S. rebound.

The president held forth, unprompted, on what European leaders could and should do to fix their economic woes, though he insisted he was not "scolding them or telling them what to do."

He never mentioned his election opponent, Republican Mitt Romney. But the campaign seemed to be an important factor in the day's events.

Powerless to take on the economic mess overseas by himself, Obama tried to show Americans he was nonetheless engaged in trying to help by offering ideas. At the same time, he was sending a message to his European peers to be resolute and move firmly.

"Now, the good news is there is a path out of this challenge," Obama said. "These decisions are fundamentally in the hands of Europe's leaders, and, fortunately, they understand the seriousness of the situation and the urgent need to act."

Along with a specific recommendation that Europe inject money into its banking system, he said European leaders must focus on economic growth and job creation, not just "cutting and cutting and cutting" spending to deal with debt problems. That's the same point he's trying to make to Congress — and to voters — back home.

Obama did not go as far as to say Republican lawmakers were rooting for economic failure to undermine him. But he did suggest they may be stalling on his jobs proposals simply because it's an election year.

Republican House Speaker John Boehner of Ohio has presided over a GOP majority that time after time has torpedoed Obama's economic and jobs legislation. Obama says one reason more jobs haven't been produced in this country is because of this GOP roadblock.

But Boehner contends problems overseas are because European countries "waited too long to deal with their debt problem and their spending problem," a notion that Romney embraces on the campaign trail.

"It's not that we don't think that this president is trying. I think he is. It's just that his policies are not working," said Eric Fehrnstrom, Romney's campaign adviser.

That runs directly counter to arguments by Obama and many European leaders that the austerity programs forced in place in countries like Greece only made matters worse.

"Europe has clearly proven that austerity was the wrong policy to pursue during a recession," says Rep. Maurice D. Hinchey, D-N.Y., a member of the Congressional Joint Economic Committee. "I'm surprised that with such strikingly different recoveries occurring between the United States and Europe that so many United States lawmakers will continue to support the same types of policies that are utilized by Europe."

The European Union, composed of the 17 countries that use the euro and 10 others, is the world's biggest trading entity.

And that could have dire consequences for Obama and other incumbents running for re-election.

Michael Froman, Obama's adviser for international economic affairs, said he's optimistic some consensus can be reached that doesn't emphasize austerity as much as measures to "spur on further demand to help make sure that the recovery is secured."

Effect on U.S.

Europe's crisis is having a broad effect on the U.S. economy. Some key areas:

Falling sales for U.S. companies: Europe buys 22 percent of the goods U.S. companies sell abroad. And U.S. companies have invested more than $2 trillion in European factories and operations. Among other companies, General Motors and Ford are losing money in Europe as middle-class Europeans cut back on auto purchases.

Banks: U.S. banks have gradually reduced their exposure to Europe. But investors are still concerned that a catastrophe in Europe could infect U.S. financial institutions. Once international banks lose confidence in each other, fear tends to spread quickly across oceans.

Financial markets: U.S. stock prices have fallen sharply since early May, mainly over worries about Europe. Investors have focused on whether Spain will need a bailout, the consequences if Greece leaves the euro currency union and how American banks and other companies would be hurt by a prolonged European recession.